Advise Technologies, a software solutions provider for global regulatory compliance, has released a list of top tips for private funds preparing for their first SEC examination.
Advise Technologies, a software solutions provider for global regulatory compliance, has released a list of top tips for private funds preparing for their first SEC examination.
As part of the Dodd-Frank Act, private fund advisers have to register with the SEC for the first time and are now subject to examinations under the National Exam Program (NEP).
Administered by the Office of Compliance Inspections and Examinations (OCIE), NEP is beginning examinations for certain newly registered investment advisors that will take place over the next two years.
As part of the exam, NEP will review marketing, portfolio management, conflicts of interest, safety of client assets and valuation procedures. The overall goal is to review practices, procedures and controls to ensure the proper compliance methods are in place to ensure investor protection.
To help firms prepare for these exams, Advise Technologies offers the tips below:
1. Be prepared — Pull together the materials the examiner will likely request. If you utilize document management software such as Vault DMS, you will already be prepared with a list of documents frequently sought in an exam.
2. Study — The SEC prepares before an exam, and so should you. Know your policies and procedures, as well as your filings. You should have a playbook for your Form PF filing so you know your reasoning and references.
3. Consider a self audit — The SEC often looks for misleading statements in marketing materials, conflicts of interest, and safety of client assets. Compare your Form ADV, Form PF, investor communications, and your marketing materials for consistency. Is the strategy you reported in Form PF different from the strategy presented in your marketing materials? If your Form PF filing indicates that not all investors are subject to the same restrictions on redemptions, are your investors aware of this?
4. Be a host — Designate a liaison for the examiner. The liaison should educate the examiner about the business to help him/her understand the nature of the firm. Set up a room for the examiner and prepare a welcome sheet that includes the phone numbers for the room and the liaison and the location of the restrooms. Be prepared for the examiner to ask for a tour of your offices and operations and to observe how you handle an individual trade from the time the order is received.
5. Be proactive during the exam — Make it clear that you want to ensure compliance. The SEC will typically conduct an exit interview or conference call to discuss deficiencies. Be proactive and ask the examiner for interim updates throughout the exam so that you can implement corrective actions at the earliest opportunity. Some issues can be remedied before the exam is even complete.
“Private funds today are under unprecedented scrutiny to comply and manage the demands imposed upon them as a result of new regulatory requirements. Gathering all of the information needed for an SEC exam can be a daunting task if a firm does not have the proper tools and guidelines in place,” says Sean Sullivan, president at Advise Technologies. “A document management system, such as Vault DMS, can help firms locate, track and automate key documents to help ensure both preparedness and a passing grade for regulatory exams.”
Vault DMS allows firms to automate the regulatory exam process. With a click of a button, all of the right documents and records needed to respond to an exam letter can be collated. Firms can then preview and manage the response alongside the exam letter in the workbook to ensure everything is in place. The tool ensures efforts are not duplicated, organising the documents throughout the day in line with firm activities.
